Starbucks on a roll

SEATTLE — Despite significant foreign exchange headwinds and soft consumer environments in several key markets, Starbucks Corp. delivered a record second quarter. For the three months ended March 29, net earnings attributable to Starbucks were $494.9 million, or 33c per share on the common stock, up from $427 million, or 28c per share, in the comparable period.

Net revenues for the quarter totaled $4,563.5 million, up 18% from $3,873.8 million in the comparable quarter.

Global comparable store sales increased 7%, with a 3% increase in traffic, marking Starbucks’ 21st consecutive quarter of comparable sales growth of 5% or greater, with 7,000 stores in the United States and 10,000 worldwide.

“No other global retailer approaching our size or store base comes remotely close to posting such consistently strong comp performance,” said Howard Schultz, founder, chairman and chief executive officer of Starbucks, during an April 23 earnings call with financial analysts.

Revenues for the Americas segment advanced 11% to $3,128 million, driven by a 7% growth in comparable store sales and incremental revenues from 636 new store openings over the past 12 months. Operating income rose 17% to $709.6 million for the quarter.

“Our Americas segment delivered another outstanding quarter, with performance driven by the successful introduction of several innovative new coffee beverages, including Starbucks Flat White, our new tiramisu and caramel flan beverage; an expanded selection of Teavana-branded tea beverages; and very positive customer response to our new breakfast sandwich lineup, all of which contributed to increased food attach across virtually all regions and day parts,” Mr. Schultz said.

Food sales in Starbucks’ U.S. stores grew 16% year-on-year and contributed 2 points of comparable growth during the quarter.

“Noteworthy has been the sales of our innovative new breakfast sandwiches, (which) contributed to a 35% year-over-year growth in our breakfast sandwich program,” said Kevin Johnson, president and chief operating officer, who joined the company in January. “Our lunch platform also delivered double-digit year-over-year gains as well.”

Initial results of Starbucks’ mobile order and payment program in more than 600 stores across the Pacific Northwest have exceeded expectations, and executives said the company is on track to deploy the platform to all company-owned locations nationwide before the holiday season.

For the Europe, Middle East and Africa region, net revenues fell 10% to $280.3 million, driven by unfavorable currency translation and a shift in the portfolio to more licensed stores, partially offset by a 2% increase in comparable store sales. Operating income increased 65% to $29.2 million.

Net revenues in China and Asia Pacific soared 124% to $595.2 million, driven by incremental revenues from the acquisition of Starbucks Japan and the opening of 711 net new stores over the past 12 months, as well as a 12% increase in comparable store sales. Operating income climbed 29% to $112.4 million.

“CAP (China Asia Pacific) remains a focal point of our future growth, and we are on track to meet our goal of doubling our CAP store count to roughly 10,000 locations, tripling our revenue to over $3 billion, and tripling our operating income to over $1 billion over the next five years,” Mr. Schultz said.

For the Channel Development segment, net revenues grew 16% to $428 million as a result of increased sales of premium single-serve products, as well as higher packaged coffee sales and food service sales. Operating income jumped 23% to $156.1 million, as operating margin benefited from efficiencies in cost of goods sold, increased income from North American Coffee Partnership and sales leverage.

“Since launch, Starbucks has built its leading position on the K-Cup platform through ongoing product innovation, including the introduction of single origin coffees and seasonal and L.T.O. offerings, including holiday blends, and by expanding our channels of distribution,” Mr. Johnson said. “We will continue to innovate around out K-Cup portfolio, including new offerings for summer refreshment, including iced Starbucks coffee and Tazo iced tea K-Cups to brew over ice.”

Net earnings for the first half of the year advanced to $1,478.3 million, or 97c per share, which compared with $967.6 million, or 63c per share, for the same period in fiscal 2014.

Net revenues for the first six months of the year increased to $9,366.8 million from $8,113.4 million.

For 2015, management continues to expect full-year revenue growth of 16% to 18%, full-year earnings per share in the range of $1.77 to $1.79, and global comparable store sales growth of mid-single digits.

In mid-morning trading on April 24, Starbucks’ share price was up nearly 5% from the previous close of $49.43.

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